UPDATE 1-Argentina says eyes swap of restructured debt to place under local law

Argentina's Economy Minister Axel Kicillof said the government was starting to take steps to restructure debt held by exchange bondholders to place it under Argentine law so it could continue to service it despite adverse US court rulings.

Kicillof said Argentina would take the necessary measures to ensure it could honour commitments to holders of restructured debt, a day after suffering a major setback in a long legal battle against 'holdout' investors who refused Argentina's 2005 and 2010 debt swaps.

"We cannot allow (holdouts) to prevent us from honoring our commitments to creditors," Kicillof told a news conference. "For this reason we are starting the steps to start a debt swap to pay them in Argentina under Argentine law."

After Argentina's 2001-02 default on $US100 billion, creditors holding about 93 per cent of Argentina's bonds agreed to participate in swaps, accepting between 25 and 29 cents on the dollar.

Kicillof said Argentina would also get its lawyers to speak with US District Judge Thomas Griesa to explain his position. The US Supreme Court on Monday declined to hear Argentina's case against holdout hedge funds, leaving intact Griesa's ruling that the country must pay them $US1.33 billion.

"We are going to take the measures needed to be able to pay," said Kicillof. "But we will also send our lawyers to talk to Judge Griesa to see what he is referring to when he says he isn't pushing Argentina into a default with this ruling."

Kicillof said US court rulings would push the South American country into a new default because it would open the door to claims from other holdout bondholders worth $US15 billion.

"Essentially he's saying Argentina is going to ignore the ruling," said Ignacio labaqui, analyst for consultancy Medley Global. "This is a fairly risky move ... Still, they haven't close the door to negotiations."